Global regtech investment at US$18.6 billion in 2022, global fintech investment falls from 2021 high

EN | TH

• Global fintech market attracts U$164.1 billion across 6,006 deals in 2022 – a strong showing despite falling from the high of US$238.9 billion seen in 2021
• Payments space remains the strongest fintech subsector globally, attracting US$53.1 billion in total investment

According to the Pulse of Fintech H2’22 – a bi-annual report published by KPMG highlighting global fintech investment trends – total global fintech investment across M&A, PE, and VC fell to US$164.1 billion across 6,006 deals in 2022, after reaching a record US$238.9 billion across 7,321 deals in 2021. While results were substantially lower compared to 2021 peak highs, 2022 was not a poor year. In fact, it was the third best year for fintech investment ever and the second strongest year for deal volume.

The sharp drop-off in fintech investment between H1’22 and H2’22 – from US$119.2 billion to US$44.9 billion – highlights the rapidly shifting market conditions much more clearly. H1’22 saw numerous US$1 billion+ deals with eight M&A – including the US$27.9 billion acquisition of Australia-based Afterpay by Block, two VC raises – Germany-based Trade Republic and UK-based Checkout.com, and one PE deal – US-based Genesis Digital Assets.

H2’22 saw just three M&A deals over US$1 billion, all in the US, including the US$8.4 billion buyout of Avalara, the US$1.7 billion buyout of Billtrust, and the US$1.6 billion buyout of Computer Services Inc. The largest VC raise of H2’22 was an US$800 million raise by Sweden-based Klarna – in what was a significant rounding down. The largest PE deal was a US$250 million raise by US-based Avant.

Regionally, the Americas remained the dominant force globally accounting for US$68.6 billion in investment in 2022; the US accounted for US$61.6 billion of this total. The Asia-Pacific region reached a marginal new high of US$50.5 billion in 2022. The EMEA region attracted US$44.9 billion. While the payments space attracted the largest share of fintech funding in 2022 (US$53.1 billion), regtech was the hottest sector of the year, with investment rising from US$11.8 billion in 2021 to US$18.6 billion in 2022.

• Global fintech investment was US$164.1 billion across 6,006 deals in 2022, down from the record high of US$238.9 billion across 7,321 deals in 2021.
• Payments remained the strongest area of fintech investment globally in 2022. Regtech was the only sector to buck the downward trend.
• Investment in crypto and blockchain fell to US$23.1 billion in 2022. The decline follows the wake of the May Terra (Luna) crash and the November bankruptcy of FTX.
• Global M&A deal value dropped from US$105.1 billion in 2021 to US$73.9 billion in 2022; global VC investment declined from US$122.9 billion to US$80.5 billion year-over-year. PE growth investment dropped less sharply, falling from nearly US$11 billion in 2021 to US$9.7 billion in 2022.
• The Americas attracted US$68.6 billion across 2,786 deals in 2022, of which the US accounted for US$61.6 billion across 2,222 deals. The Asia-Pacific region attracted US$50.5 billion across 1,227 deals, and EMEA attracted US$44.9 billion across 1,977 deals.
• Corporate-participating VC investment globally fell from US$62.8 billion in 2021 to US$39.6 billion in 2022.
• The median deal size rose for both angel & seed-stage deals (from US$1.8 million in 2021 to US$2.4 million in 2022) and early-stage VC deals (from US$5.75 million to US$6 million) while falling for later-stage VC deals (from US$15 million to US$13.9 million).

Crypto and blockchain investment fell to US$23.1 billion in 2022 from US$30 billion in 2021. The decline was particularly noticeable in H2’22 as investor sentiment related to the consumer crypto space and crypto exchanges plummeted following the Terra (Luna) crash in late H1’22 and the bankruptcy of crypto hedge company Three Arrows Capital in July. With consumer crypto offerings losing their luster, investors have turned to broader blockchain-based solutions and value propositions, including institutional use cases and GRC applications. This could drive more diverse investments in the blockchain space in 2023.

Fintech investment in the Americas was US$68.6 billion in 2022, with the US accounting for most of this total (US$61.6 billion). By comparison, Brazil attracted US$1.8 billion, and Canada attracted US$1.3 billion. While total investment declined year-over-year in the Americas, angel & seed-stage deals attracted a record US$4.5 billion up from US$3.4 billion in 2021. Angel & seed-stage deals also saw the median deal size rise from US$2.4 million to US$3 million year-over-year. The Americas also saw its second strongest year of CVC-participating investment in 2022, with US$18.2 billion of investment; the US accounted for US$14.9 billion of this total.

Fintech investment in the Asia-Pacific region rising from US$50.2 billion in 2021 to US$50.5 billion in 2022. The US$27.9 billion acquisition of Australia-based buy now, pay later company Afterpay by Block in H1’22 accounted for over half of this total. The impact of the one megadeal was particularly noticeable when looking at H1’22 and H2’22 results separately with fintech investment in H2’22 just US$5.8 billion, compared to the US$44.6 billion seen in H1’22. As a result of the Afterpay acquisition, Australia led fintech investment in the Asia-Pacific region with US$30.2 billion of investment. Despite a decline from 2021’s US$7.9 billion, investment in India remained robust at US$6 billion. Singapore saw fintech investment rise from US$3.4 billion to US$4.1 billion year-over-year. Fintech investment in China remained very weak in 2022 at just US$770 million.

Fintech investment in the EMEA region dropped from US$79 billion across 2,379 deals in 2021 to US$44.9 billion across 1,977 deals in 2022. Investment in H1’22 was far more robust than in H2’22 accounted for US$32.8 billion in investment compared to US$12.1 billion. The lack of US$1 billion+ fintech deals in H2’22 accounted for much larger drop-offs – with the largest deal in H1’22 the US$3.9 billion buyout of Italy-based SIA, compared to the US$840 million buyout of UK-based Nucleus Financial Group in H2’22.

With the macroeconomic challenges plaguing the public markets and the IPO window expected to remain closed well into the H1’23, fintech investment globally is expected to remain subdued, even compared to H2’22. While M&A activity could begin to pick up, deal sizes will likely be much smaller as investors wait for valuations of late-stage companies to settle. Regtech will likely remain one of the most resilient sections of fintech investment, in addition to B2B solutions within all fintech verticals. While crypto investment is expected to be particularly weak in H1’23 as investors reconsider their due diligence processes and regulators consider tightening crypto regulations, the broader area of blockchain-based solutions including institutional use cases, cross-border payments, gaming, and NFTs will likely gain additional attention from investors.

Despite any short-term softness in the global fintech market, the long-term outlook for fintech investment remains positive given the ongoing transformation of financial services in many different jurisdictions and the growing focus globally on embedding financial services offerings into other sectors.

The H2’22 was particularly challenging for the fintech sector globally amidst a combination of challenging economic conditions like high inflation and interest rates and specific market challenges like the lack of IPOs and exit opportunities, continued downward pressure on valuations and margin pressures for companies in areas like buy now, pay later. With little sign that the challenging market conditions will begin to alleviate as we head into H1’23, fintech investment is expected to remain relatively subdued, although some fintech subsectors are expected to be more resilient than others. Here are the top fintech trends for H1’23:

1. M&A deal sizes will be relatively smaller: The likelihood of mega-M&A transactions – $10 billion+ in deal value – will be relatively low. M&A activity in general could increase as valuations stabilize and corporates or large fintech with deep pockets look for the opportunity to pick up companies at good prices.
2. B2B solutions will continue to attract solid investment: With many companies, both in the financial services sector and beyond, focusing on cutting costs and driving more customer value, B2B solutions will remain a key priority for investment.
3. Interest in non-crypto blockchain-based solutions will grow: As investors pull back to re-evaluate their approaches to invest in crypto, other areas of blockchain innovation will see growing interest such as cross-border payments solutions, gaming, and NFTs.
4. AI-driven fintech solutions will gain more attention from investors: Particularly in areas like AI-based data analytics, real-time risk assessment, and customer engagement.
5. Regulators will put more scrutiny on the crypto space: Given events of 2022, regulators around the world will put more scrutiny on companies and activities in the crypto space.
6. ESG-focused fintech will see growth: With climate change, a major priority for governments, businesses and consumers, interest and investment in fintech solutions aligned to ESG will likely grow considerably. Investments could be diverse, from financing platforms for renewable energy projects to ESG-focused regtech solutions. 

The Bank of Thailand issued the Consultation Paper on Virtual Bank Licensing Framework to introduce virtual banks as new financial service providers. The Virtual Bank will be serviced by people who specialize in service technology, digital services, and the use of data to analyze customer behavior to provide new financial services through digital channels at a lower cost and can respond to the needs of customers more precisely and comprehensively. The Bank of Thailand is expected to release the final licensing regulations and open for application in 2023. The list of approved applicants by the Minister of Finance will be announced in 2024. Initially, there will be a limit of no more than 3 licenses.¹

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KPMG in Thailand, with more than 2,000 professionals offering Audit and Assurance, Legal, Tax, and Advisory services, is a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.

Kampanat Induang
E: kampanati@kpmg.co.th